Palantir Wins A $115M Contract Extension

+ Palantir Responds on AI Regulations

Alright, we are done for this week of DailyPalantir!

Thank you everyone for taking the time to read this week — nice way to end out the week with a new, $115M deal.

Palantir Wins Their 4th Year Extension for the Army Vantage Program

First — an overview of what this contract even is:

• Original Contract: The Army Vantage contract is a partnership between Palantir Technologies and the U.S. Army, initiated in December 2019 with a $458 million agreement. It is designed to provide the Army with a comprehensive data analytics platform known as Army Vantage.

• Data Integration and Decision Making: Palantir's role under this contract is to enhance the Army's readiness and decision-making capabilities by offering near real-time visibility and controlled access to disparate Army data sources on an integrated data platform.

• Operational Impact: The platform has been instrumental in various operational aspects, such as managing Soldiers' risk behaviors, tracking COVID-19 inventory and immunization rates, and improving weapons accountability processes.

• Innovation and Recognition: Army Vantage, powered by Palantir's software, has been recognized for its innovation, receiving an award from the American Council for Technology and Industry Advisory Council (ACT-IAC) for improving data-driven operations within the Army.

Palantir's software serves as the central operating system for Army Vantage, breaking down data silos and providing a unified operational picture to support informed decision-making across the Army's force.

Winning a 4th year was NOT at a probability of 100%, so this is a great thing for Palantir.

“Palantir is honored to extend our work with the U.S. Army as it evolves into the Army Data Platform solution,” said Akash Jain, President of Palantir USG. “Building on our shared history of operational excellence and innovation, our partnership has consistently provided the Army with a decisive edge in data-driven decision-making. This extension is evidence of the value we bring to the nation’s defense, including our joint efforts to provide more commercial technology providers the opportunity to equip soldiers with the innovation they need to meet their most pressing challenges.”

Okay, now let’s talk about the drama with this deal…

Louie DiPalma, analyst at William Blair put out a research note last week, sending the stock from $19 to $17, as he scared investors on Palantir not getting the extension.

He was wrong. Palantir CTO Shyam Sankar had to publicly tweet about how wrong he was, quoting the Army on their correction of them.

Today, Raymond James — a fund with an outperform rating on Palantir, said this:

Raymond James knew that going forward into the future, the Army would have different ways of procuring contracts — everyone knew this.

Louie tried to take that and turn it into something where the entire market would perceive it as a negative, even indicating Palantir might not get the extension they got today, and ended up just looking sloppy with his analysis.

Mariana Comments

BofA analyst Mariana Perez Mora maintained a BUY rating and $21 price target on the stock, saying the one-year extension was unexpected.

“The up to $115mn contract extension is in line with the annualized rate of the original contract award ($458mn), slightly below the annualized actual action obligation ($480mn) and 15% higher than Option year 2/3 average obligations. $35.6mn were obligated at the time of the award,” said Mora.

“We think that PLTR has a strong position to remain a key provider of data engineering & orchestration capabilities in a growing data-centric operational strategy. The recent contract extension and the fact that PLTR can add AIP capabilities to existing offerings support our thesis,” she argued.

So, the firms bullish on Palantir didn’t really see the negative of this award or awards going into the future — they will be competitive and Palantir will have to fight for them, but winning this year’s contract goes to show that the Army is continually relying on Palantir to build out an integrated system to drive operational efficiencies and does not have alternatives as of now.

Government Growth

This is an interesting chart I saw on a seekingalpha article.

Given the award we won today, it’s important to remember why the government business is so strong for Palantir: even though the rate of growth is declining, the overall money they are making from the US gov is continuing to go higher, last quarter getting $308M from the government.

Alex Karp has said this many times — the government business is lumpy. Some years they’ll make $0, other years they will make $1B, but it will CAGR out to a growing business. It’s just the nature of the government.

In Q2 22 you can see the growth rate got to its lowest at 13%, and then spiked the next quarter to 26% — this is how the gov business is. My bull case for Palantir’s gov side of the business is that they are so sticky that over the long term, they will simply continue to become more important to the government and grow — especially as the US is ready to spend more money on AI. Palantir’s head of AI, Anthony Bak, sits on the board of National AI Advisory Committee (one of 10 members).

I do not think Palantir’s influence in the government is going down, in fact, I think it’s just beginning — especially with their ability to now onramp new startups into selling defense tech with their FedStart program.

Palantir and SpaceX are the only two companies that have sued the government for ineffective procurement and won. Their products are simply that good, and will likely continue to grow, even if not in a linear way — over time, the business should be fine, and I will update my thoughts if I see any changes to that thesis.

Speaking of AI…

Palantir released an article today on their recommendation to encourage the healthy regulation of AI:

Here’s what they suggested:

• AI governance should be incorporated into existing agency oversight bodies, as opposed to constructing new governance entities.

• With respect to responsibly leveraging generative AI — including Large Language Models (LLMs) — we advised on implementation of strong Testing & Evaluation (T&E) frameworks to help identify contexts in which LLMs can make the most impact while minimizing attendant risks and enabling operational efficacy, safety, security, and ethics. Specifically, we point to a set of the demonstrably compelling and defensible LLM use case archetypes, while outlining a set of failure modes that institutions aspiring to use LLMs commonly fall into.

• Towards the goal of refining the set of practices implemented by agencies in making risk assessments of AI applications, our response underscored the value of agencies providing responsible AI guidance that is tangible, operationally focused, and that gives primacy the protection of relevant rights. At the same time, we encouraged a set of improvements to current minimum practices, including recommendations for clarifying the metrics used to concretely assess AI risk, the need for continuous evaluation (as opposed to single-point-in-time assessments), and the value of incorporating data privacy impact into the assessment frameworks. Lastly, we suggested the inclusion of two new practices. The first focused on the need for agencies to plan for AI system releases and rollouts to limited environments and the handling of upgrades, downgrades, replacements, or fallbacks on non-AI options in the event of AI failure. The second advised that agencies formalize planning for how to safely discontinue the use of an AI system if and when such a step becomes necessary.

Again, it seems like people in the government are actually listening to Palantir — which is why they are putting out these suggestions. I can imagine them getting ready to sell AIP to government clients, but they will need to make sure the government is ready to adopt these products and begin the transformation into being AI first.

Oh boy…Ross

If you’ve been in Palantir for a while, you know Ross Gerber compared Palantir to Nazi Germany.

Yes, a guy who manages $2B for clients said this.

He had three arguments on his updated claims during his recent livestream (as of 2 days ago) about 1. Palantir not being a leader in AI, 2. Karp being scary to look at, and 3. them tracking all our data selling it to governments.

My response…

1. Misconception of Palantir's Role: Gerber's analogy likening Palantir to Nazi Germany starkly misrepresents the company's actual business model. Palantir specializes in data integration and analytics, primarily serving government and defense sectors. This significant mischaracterization overlooks the company's efforts in providing secure data management and analytical solutions, which are essential in the current technological landscape. It’s also just weird…the UK gave the second coming of Nazi Germany a contract to manage 70M people’s healthcare data…really?

2. Palantir's Position as an AI Leader: The dismissal of Palantir's status in AI innovation overlooks several key indicators. Numerous sources and industry rankings place Palantir at the forefront of AI development, particularly noting its advancements in government-related applications. This evidence suggests that Palantir's AI capabilities are not only significant but also instrumental in shaping the sector. Gerber has not studied the AI space at all to say this.

3. Personal Critiques of Alex Karp: The focus on Palantir's CEO, Alex Karp, particularly regarding his appearance and character, detracts from a factual and objective analysis of the company's performance and potential. The relevance of a CEO's personal traits to a company's business efficacy is minimal; what matters more are the strategic decisions and leadership qualities they bring to the table. He said Alex Karp was scary and that we shouldn’t pay attention to his arguments because of his hair…it shows the lack of nuance Gerber has in understanding a deeply intricate argument about AI, western values, and the nature of civil liberties because…he doesn’t like the CEO’s hair.

4. Data Privacy and Ethical Use: Concerns about data privacy and unethical usage of data at Palantir need to be contextualized. Palantir’s operational model does not involve monetizing user data for advertising or selling it to third parties. Instead, its software serves to enable organizations to manage and interpret large-scale data responsibly, aligning with ethical standards and privacy concerns. Gerber really does not get what Palantir does. At all.

5. Valuation and Insider Sales: The critique of Palantir's high market valuation and insider stock sales requires a nuanced understanding of the tech industry's economic dynamics. Snowflake is approaching $70B…SaaS companies get multiples. High valuations are common among software companies, reflecting growth potential and the market’s optimism around that growth. If Palantir shows the growth, they will command a multiple. Furthermore, insider stock sales are a widespread practice and not indicative of a company's inherent weaknesses or problems. So saying “the insiders are cashing out,” uh yeah…if a stock runs up 200% YTD, insiders sell. Especially when they’ve held shares for a decade. He goes on to say NVDA is the best stock to own — Jensen Huang has sold almost $200M worth of NVDA stock in the past 2 months…so now is NVDA bad? It just did not make sense. Here’s a video of me discussing this as well.

Overall, doesn’t seem like Ross understands Palantir, but eventually as they continue to execute, most people with naive assumptions and blanket statements about them will have to adjust.

Alright, that’s it for me this week — thank you everyone for keeping up with the newsletter and reading and thank you to all the new subscribers who joined this week.

Happy Holidays and hope you enjoy some time with your families this weekend - see you Monday!